Posts Tagged ‘refinance’

Streamline FHA refinance

So about two weeks ago I got a letter in the mail from a finance company offering a new low interest rate on my home FHA home loan. I should hurry and take advantage of the new low rates and drop my interest rate from 6% to 5% with no out of pocket money. Because of the recent Obama stimulus package many new options are now available to help save money with home loans, including a streamline FHA refinance.

At first I was very skeptical. I have never heard the term streamline FHA refinance before so I had to do a little research. After just a few minutes and several website articles I realize streamline loans are a totally legit way to refinance your home loan.

Your loan must meet a few guidelines before it’s eligible for the refinance.

1. The loan must already be insured by the FHA.
2. You have to be current on your mortgage payments with no late notice.
3. The refinance must lower your interest rate and monthly payment
4. No money can be received back to the borrower as a result of the refinance.

I contacted the company and started the process. The entire process was very simple and only required verification of employment, copy of our drivers license, social security numbers, and home owners insurance. We closed the streamline loan in less than 10 days. The underwriter even came to our house to sign the loan papers.

The only negative thing to say about the whole process was about $1,500 in closing costs due to the lender which wasn’t ever disclosed during the process. However, this is much lower than any other home loan I have every closed. Our escrow account even transferred over so that money wasn’t due at closing. The $1,500 was rolled into our loan so there was no out of pocket money due at closing. We lowered our interest rate 1% and our monthly payment decreased by $135. We should recover the closing costs in less than one year. Best thing about the streamline loan is that if the interest rate dropw another percent we can do the process again!

Be smart when you refinance your home

It may sound tempting to refinance your home loan now that rates are low, but is it really the smart thing to do? Before you make the final decision to refinance your home be sure to do all the calculations carefully. You could actually end up losing money on a home refinance.

When you refinance your home there are many fees involved that must be considered along with the lower rate. There are many fees that are mandatory before you can close the refinance loan and these little fees can add up to a large chunk of money at the end. Typical refinance fees include: application fee, title search and title insurance, appraisal fee, survey costs, hazard insurance, attorney’s fees, home inspection fees, loan origination fees, mortgage insurance, prepayment fees, flood certification, interim interest, and discount points.

An application fee is charged by the lender which covers their cost to process the loan. Usually this fee is paid up front and ranges from $75 to $300. Most lenders apply this cost to the final loan. Usually this fee is non refundable even if you are not approved for the loan.

A title search is required even though one has already been performed on the home. A title search is a review of the historical record associated with the property. This includes items such as property and name indexes, deeds, court records, etc. The lender does a title search to ensure that the buyer is purchasing a house from a legal owner and there are no liens against the home. In the case of a refinance loan they want to make sure you own the home and they are aware of any outstanding liens or loans on the home. 

The lender needs to perform an appraisal fee to make sure the value of the home will stand good for the loan amount. Today many lenders will only loan an amount equal to 80% and 90% of the home value. About a year ago many lenders would loan over 100% of the home value, but times have changed. For example if your home is appraised for $200,000 then a lender who lends 90% of the value would only loan $180,000 toward the home. This means if you owe more than $180,000 then you could not refinance the home. Typical appraisal fees range from $150 to $400 and vary based on the value of the home.

Sometimes lenders require a survey on the property before you can refinance a loan. This is to make sure you have not crossed any boundaries of the property while you have lived there. This cost can range from $200 to $400 depending on the size of the property.

Hazard insurance costs are included in closing costs. It’s mandatory to have hazard insurance on the property before a loan can be acquired. Most lenders requrie these to be prepaid thus they are included in closing costs.

Attorney’s fees must be paid at closing to cover any work the attorney does for the loan. Usually these fees range from $50 – $200.

Sometimes lenders a new home inspection before you can refinance the loan. This is to make sure the home is still in good shape in case you were to default on the loan. Home inspection fees usually range from $150 to $400.

A loan origination fee is a fee charged by the lender for preparing, evaluating and submitting a proposed mortgage loan. Most of the time these fees are expressed as a percentage of the loan amount.  A typical loan origination fee is about 1% of the loan amount.

Mortgage insurance or PMI is usually required by lenders if you need a loan for more than 80% of the homes value. This can be charged on a monthly basis or as a lump sum at closing. If it’s paid in closing it’s typically 1/2% to 1% of the loan amount.

A tricky fee that is often overlooked is a prepayment fee. If you pay off the loan before the end of the term you will be charged a fee. This fee can vary by states but should always be presented to you at closing.

A flood certification fee is a small fee, usually less than $50. It’s required by most insurance companies to ensure the home is not in a flood plain.

Interim interest is the amount of interest that has accrued from closing date until the end of the month. This can be a large sum if you close at the first of the month.

Finally, discount points is a percentage amount that is typically 1/2% to 1% of the loan amount. This fee is used to reduce the interest rate of the loan. This varies by bank but an example would be paying 1 point (1% of the loan amount) to reduce the interest rate 1/4%.

As you can see there many fees associated with closing a loan. Be sure that these fees don’t add up to more than you will save over the time you expect to keep the loan. Just because you are getting a smaller monthly payment doesn’t mean you are actually saving money!

Reasons you may want to refinance your home

Interest rates are still very low compared to a decade ago. Average mortgage interest rates continue to stay around the 6.5% mark for the 30 year fixed loan. You may have thought about refinancing your home loan before, but just never got around to following through, or maybe you just didn’t know if it would be in your favor. Everyone’s financial situation is different and you should consider many different factors before you decide to refinance. Some factors to consider are your financial goals, your current interest rates, the currently type of mortgage loan you have, and how long you want to stay in your current home. After you consider these factors here are 5 instances when you may want to consider refinancing your current home mortgage loan.

Refinance from an adjustable rate mortgage (ARM) to a Fixed-Rate Mortgage

An adjustable rate mortgage is a type of mortgage loan that is fixed for a certain amount of time, usually 3, 5, or 7 years. After that time period the rate adjusts usually according to the current prime rate. The interest rate can continue to rise with the prime rate up to a certain percentage. The advantage to an ARM loan is a lower interest rate and payment for a short period of time. If you had an arm loan a couple of years ago with a really low interest rate and that term is expiring you may want to refinance your mortgage loan into a fixed-rate in order to avoid the rising interest rates.

Refinance from a fixed-rate mortgage to an ARM

A fixed-rate mortgage is a loan for a certain time period, usually 15, 20, 25 or 30  years. The interest rate is fixed for the entire period of loan. This is a great deal if interest rates are low when you lock the rate, but bad if the rate you have is much higher than current interest rates. A good time to refinance your fixed-rate mortgage to an ARM loan is if yo are planning on moving in the next 3,5, or 7 years and interest rates are much lower now than your current fixed rate. You can take advantage of the lower interest rates and then purchase your new home before the rates start to rise.

Lower your monthly mortgage paymnet

You may want to consider refinancing your home mortgage loan to lower your monthly mortgage payment. Even the smallest drop in interest rates can change a monthly mortgage payment significantly. For example lets assume you borrowed $250,000 on a home 5 years ago at 7.5% for 30 years. Today interest rates have dropped to 6.25% and you want to consider refinancing the mortgage.  Your original mortgage payment would have been around $1750, your new payment would be $1435 a savings of about $315 per month. I’m assuming you paid your exact payment for 5 years so you would only refinance $233,000. There are other factors to consider such as closing costs but some simple math can save you some money in your monthly budget.

Getting cash from your home for improvements or additions

Wanting to finish the basement, add on a patio, screened in porch or swimming pool? Where will you get the money to do these projects? A great option is a home equity loan. If you got equity in your home you can take out a second mortgage on the house to finance the other projects. Not only will you get a better interest rate than a credit card but the loan is also tax deductible.

Consolidate high interest rate credit card debt

If you’ve got yourself into more debt than you can handle it’s possible to take out a second mortgage on the house to consolidated high interest rate credit card debt.  I’m not a big fan of this method because most people who choose this option will use the credit cards again. Be very careful when taking loans against your home it’s your prized possession and mortgage companies won’t hesitate to take it away from you.